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Recent Delaware Corporate Law Updates

February 25, 2016

Amalgamated Bank v. Yahoo! Inc.:  Court of Chancery Orders Production of Emails and Other Electronically Stored Documents in Response to Section 220 Demand Relating to Hiring and Termination of Executive
In a post-trial decision, the Court of Chancery ordered respondent Yahoo! Inc. to produce additional documents in response to plaintiff Amalgamated Bank’s demand to inspect Yahoo’s books and records pursuant to 8 Del. C. § 220.  Amalgamated Bank v. Yahoo! Inc., 2016 WL 402540 (Del. Ch. Feb. 2, 2016).  In doing so, the Court interpreted Section 220 to provide for the production of electronically stored information in addition to physical documents.  
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In re EZCorp Inc. Consulting Agreement Derivative Litigation:  Court of Chancery Applies Entire Fairness Scrutiny to Contract Between Controlling Stockholder and Corporation Despite Approval by Independent Committee
In In re EZCorp Inc. Consulting Agreement Derivative Litigation, 2016 WL 301245 (Del. Ch. Jan. 25, 2016), the Court of Chancery denied a motion to dismiss derivative claims challenging a series of payments between a corporation and its controlling stockholder, even though those payments had been approved by the Audit Committee of the corporation’s board.  After review of extensive case law, the Court concluded that the weight of authority called for application of the entire fairness standard at the pleading stage, with the possibility that an evidentiary showing of independent committee approval could support a shift in the burden of proof later in the case.  The Court determined that such transactions could be subject to dismissal at the pleading stage under the business judgment rule only where the transaction is approved by both an independent committee of the board and a majority of the minority stockholders.
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In re Trulia, Inc. Stockholder Litigation: Court of Chancery Rejects Disclosure-Only Settlement and Signals New Era of Increased Scrutiny     
In In re Trulia, Inc. Stockholder Litigation, C.A. No. 10020-CB (Del. Ch. Jan. 22, 2016), the Delaware Court of Chancery refused to approve a class action settlement that called for marginal disclosures in exchange for a broad release of stockholder claims.  In so doing, the Court announced that moving forward it would review such “disclosure settlements” with increased scrutiny.
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In re Genelux Corporation and In re Baxter International Inc.: Court of Chancery Provides Guidance Regarding the Scope of Section 205 of the DGCL
Two recent decisions by the Delaware Court of Chancery have helped to define the contours of the Court’s authority in proceedings under Section 205 (“Section 205”) of the General Corporation Law of the State of Delaware (the “DGCL”).  In In re Genelux Corporation, 126 A.3d 644 (Del. Ch. 2015), the Court of Chancery held that a corporation cannot use Section 205 to invalidate prior corporate acts, and in In re Baxter International Inc., C.A. No. 11609-CB (Del. Ch. Jan. 15, 2016) (TRANSCRIPT), the Court of Chancery held that a corporation cannot use Section 205 as a means to ensure the validity of future corporate acts.
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In re Vaalco Energy, Inc. Stockholder Litigation: Court of Chancery Finds that Certificate and Bylaw Provisions Providing that Directors May Be Removed for Cause Only Are Invalid Unless Board Is Classified or Corporation Has Cumulative Voting
In In re Vaalco Energy, Inc. Stockholder Litigation, C.A. No. 11775-VCL (Dec. 21, 2015) (TRANSCRIPT), the Court of Chancery granted the plaintiffs’ motion for summary judgment and invalidated certain provisions of Vaalco’s certificate of incorporation and bylaws, which provided that members of its board of directors could only be removed for cause.  The Court held that the default rule under Section 141(k) of the Delaware General Corporation Law (the “DGCL”) that directors “may be removed, with or without cause” may be limited to removal only for cause solely in corporations that either (i) have a board classified pursuant to Section 141(d) of the DGCL (i.e., a staggered board), or (ii) provide for cumulative voting pursuant to Section 214 of the DGCL.  
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In re El Paso Pipeline Partners, L.P. Derivative Litigation: Court of Chancery Suggests a New Approach to Evaluating Claims that Are Both Direct and Derivative
In In re El Paso Pipeline Partners, L.P. Deriv. Litig., 2015 WL 7758609 (Del. Ch. Dec. 2, 2015), the Court of Chancery denied a motion to dismiss a suit, in which the Court had already entered a $171 million damages award against the defendants, on the grounds that the plaintiff had lost standing as a result of a post-trial merger.  In denying the motion to dismiss, the Court addressed the distinction between direct and derivative claims while offering its view with respect to dual-natured claims.  
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RBC Capital Markets, LLC v. Jervis:  Delaware Supreme Court Affirms Liability of Financial Advisor for Aiding and Abetting Breaches of Fiduciary Duty
In RBC Capital Markets, LLC v. Jervis, __ A.3d ___, 2015 WL 7721882 (Del. Nov. 30, 2015), the Delaware Supreme Court affirmed a post-trial decision by the Court of Chancery holding that a financial advisor was liable for aiding and abetting breaches of fiduciary duty by directors of a corporation during a sale of control transaction.  In doing so, the Court held that the evidence supported a finding that the advisor had the necessary scienter for an aiding and abetting claim; that is, the financial advisor “knowingly participated” in the breach by “exploiting its own conflicted interests to the detriment of [the corporation] and by creating an informational vacuum.”  The Court refused to require contribution from directors (who had previously settled with the stockholder-plaintiffs), because the board was exculpated from monetary liability under the Company’s Section 102(b)(7) provision. The Court confirmed, however, that Section 102(b)(7) protections do not extend to third parties.  
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Corwin v. KKR Financial Holdings LLC:  Delaware Supreme Court Affirms Application of Business Judgment Review to Transaction Approved by Fully Informed, Uncoerced Majority of Disinterested Stockholders
In Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015), the Delaware Supreme Court affirmed a ruling by the Court of Chancery granting the defendants’ motions to dismiss a suit challenging the acquisition of KKR Financial Holdings LLC (“KFN”) by KKR & Co. L.P. (“KKR”).  The Court held that the business judgment rule is the appropriate standard in post-closing damages suits involving mergers that are not subject to the entire fairness standard and that have been approved by a fully informed, uncoerced majority of the disinterested stockholders, even where such approval is statutorily required.  
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